Gilts clearing system delayed

The Bank of England has delayed a much-improved clearing system for the gilts market from spring to late August 1997, because of the pressure put on City resources by the problems getting the Crest share settlement system up and running. The new gilts settlement system will use Crest software.

As a result of the delay, a new City market in "stripped" gilts, where the interest and principal are traded separately, will be delayed until the start of the upgraded gilts clearing system.

However, a Budget tax concession linked directly to the new strips market will take effect on 7 June, despite the delay in starting the upgraded gilts settlement system.

The Treasury concession allows all interest payments on gilts to be made gross, without tax deducted at source. This payment of interest gross is essential for the new strips market to operate.

The Bank of England said it was intended to keep open the option of merging the settlement systems for gilts and shares in future, once they were fully up and running. The Bank set up Crest, though it handed it over to a large group of City shareholders. As a first step, the two settlement systems are to use the same networks, Syntegra and Swift.

Meanwhile, Crest and the Bank are sharing information about the improvements being introduced to the new share settlement system in the light of experience with commissioning.

Crest is the first fully computerised share settlement system, and is gradually taking over from the Stock Exchange's old Talisman settlement operation.

Teething problems caused an outcry among brokers. The Crest system was on the brink of a crisis last month as pressure grew to suspend its commissioning because of delays in operation.

But a Crest board meeting last week decided to stick to the previously planned date of next April for full commissioning.

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